Hello, welcome to the Investor’s Bookshelf. Today, the book I want to introduce to you is The Long Good Buy: Analysing Cycles in Markets by Peter Oppenheimer, Chief Global Equity Strategist at Goldman Sachs.
This session will focus more on the dynamics of long-term changes, their underlying patterns, and how these shifts impact wealth.
So, what’s the use of understanding this knowledge? On a broad level, you can flexibly adjust your financial, consumption, and investment strategies, and also formulate your own risk-management strategies in advance.
By understanding how different financial products perform in economic cycles, you can choose the most suitable investments depending on the phase of the cycle. For example: during economic recovery, you may increase allocations to stocks and real estate; during a recession, you may hold more bonds or cash.
John Maynard Keynes, the founding father of modern macroeconomics, once famously remarked that the “long run” often misleads, because “in the long run, we are all dead.”
In the shocks brought by economic fluctuations, for some companies, the first issue is simply “survival.”
But what you may not know is that Keynes made this statement precisely based on his research into economic cycles.
An economic cycle refers to the alternating phases of expansion and contraction in economic activity.
One of Keynes’s major contributions was to propose “counter-cyclical regulation” and “cross-cycle regulation.”
These policy tools originated from his theory of economic cycles.
We often say “the trend is bigger than the individual,” and cycles may be the most important factor in understanding and mastering the internal laws of the economy.
However, if your understanding of cycles stops here, you are underestimating them.
Today, cycle theory places greater emphasis on the role of the financial system and the interweaving of multiple cycles, offering a more comprehensive perspective on economic operations.
Moreover, after the 2008 financial crisis, many of the established patterns of financial cycles were broken, leading to new and complex phenomena.
For example, during the COVID-19 pandemic, the U.S. stock market triggered four circuit breakers.
So why recommend this particular book among the many works analyzing financial cycles?
Because, in my view, its author Peter Oppenheimer is truly remarkable: he rose to prominence after the 2020 COVID-19 pandemic by accurately predicting the potential for a V-shaped market recovery.
Oppenheimer is not only academically accomplished in financial analysis but also a seasoned practitioner.
He graduated from the London School of Economics and the University of Cambridge, and joined Goldman Sachs in the 1990s.
He served for many years as Head of European Equity Strategy before being promoted to Chief Global Equity Strategist.
With rich experience in market analysis, asset allocation, and investment strategy, he is one of the most respected strategists on Wall Street.
Coincidentally, in recent years, Ray Dalio, founder of Bridgewater Associates, has also emphasized that the most influential economic factor in investing is the debt cycle.
His new book How Countries Go Broke: The Big Cycle directly addresses global debt risks and the core issues of economic cycles, advocating the “power of the big cycle” along with five related forces.
Dalio’s research focuses on the rise and fall of nations, the evolution of monetary systems, debt cycles, and geopolitical shifts, often with a time span of 50–100 years.
By contrast, Oppenheimer’s framework is more focused on medium- to short-term cycles of 5–10 years in the stock market and economy.
Thus, many financial analysts have praised: for predicting long-term changes in finance and markets, look to Dalio; but for analyzing medium- and short-term trends, turn to Oppenheimer!
In the financial industry, the core task of strategists is to interpret economic data, policy changes, and market trends, playing a crucial role in decision-making for investment banks, asset management companies, and research institutions.
Among these, determining the current phase of the market cycle is of paramount importance.
The same strategy, executed at different times, can yield vastly different results.
Many people often lament that their moves are always too early or too late—“one misstep leads to every misstep”—this is the issue.
Throughout life, people face countless decisions. Not only do they want to choose the right moment, but also to summarize patterns of timing to ensure success.
That’s why I always emphasize: this is not only the first principle of wealth, but also the first principle of “how to live well.”
There is a popular song called Love to Win by Striving, with lyrics that go: “Life is like the waves on the sea—sometimes rising, sometimes falling; good luck or bad, we must carry on.”
The meaning is that life has ups and downs—sometimes you are lucky, sometimes unlucky—but regardless, you must keep moving forward.
This is also the principle I have always emphasized: to dance with cycles requires not only a strong mindset and hard work, but also the ability to grasp the patterns of change, the signals of cycles, and the human nature logic behind them.
Part One: Understanding Cycles — From Economic Cycles to Financial Cycles
Cycles are an important reference for formulating macroeconomic policies.
During periods of economic recession, governments usually adopt expansionary fiscal policies such as increasing public spending and cutting taxes to stimulate economic growth and expand employment.
The Federal Reserve also implements loose monetary policies by lowering interest rates, increasing money supply, and injecting liquidity into the market.
When the economy overheats, however, governments may adopt contractionary fiscal policies, reducing public spending and raising taxes. At the same time, the Fed tightens monetary policy, raising interest rates and reducing money supply to prevent overheating and inflation.
In developed economies, there exists a long-term economic cycle of about 50–60 years.
It consists of four stages: a 15-year recession period; followed by a 20-year reinvestment phase characterized by rapid adoption of new technologies and strong economic growth; then a 10-year overbuilding phase; and finally a 5–10 year period of chaos, which leads into the next major recession.
This 60-year cycle profoundly shapes the trajectory and structure of economic development.
Since it was proposed in 1926 by Russian economist Nikolai Kondratiev, it has been named the Kondratiev Wave.
In this theory, technological innovation is the driving force of economic cycles.
Each major technological breakthrough sparks an economic whirlwind, creating new industries and new engines of growth.
In the Kondratiev Wave, new technologies progress from emergence to widespread application, propelling the economy into a boom phase.
As these innovations spread and mature, the economy overheats; once the benefits are exhausted, the economy declines—until the next wave of innovation restarts the cycle.
In fact, the Kondratiev cycle is only one among several economic cycle theories.
For example, the Kitchin cycle focuses on inventory fluctuations, lasts about 40 months, and is driven by commodities and stockpiles.
The Juglar cycle centers on equipment investment, lasts 7–11 years, and is linked to capital expenditure.
The Kuznets cycle is associated with income changes, spanning 15–25 years.
These theories reveal the patterns of economic cycles from different perspectives.
Returning to The Long Good Buy, authored by Peter Oppenheimer, Chief Global Equity Strategist at Goldman Sachs: when assessing economic cycles, he emphasizes the influence of financial markets on the economy.
He defines the financial cycle as the sustained fluctuations and periodic changes in financial and economic activity, transmitted through the financial system under internal and external shocks.
Sound a little abstract? Here’s a simpler version: when the economy is booming, investors’ risk appetite rises, credit expands, and asset bubbles form, pushing the financial cycle upward.
When the bubble bursts, credit contracts, asset prices fall, and the financial cycle turns downward.
This wave interweaves with the economic cycle and has a profound impact on the real economy.
With this in mind, we can better understand recent policies that encourage finance to “serve the real economy.”
In The Long Good Buy, Oppenheimer points out that 2000–2007 was one of the strongest periods of profit growth in global equity markets, yet it delivered the lowest returns to investors.
The issue was that this wave of strong profit growth was largely driven by the booming financial sector.
Fueled by rising leverage, these financial profits quickly proved unsustainable after the U.S. subprime mortgage crisis—becoming a textbook example of wealth destruction.
Part Two: The Return Cycle — From Stock Market Cycles to the Post-Financial Crisis Cycle
By now, you may have realized that many dimensions of the financial cycle can be measured. But for ordinary people, the most relevant financial cycle is the stock market cycle.
Dividends play a key role in total stock returns. Long-term data shows that dividends contribute a significant share of equity returns. Bearing risk is often associated with higher returns. But historical data indicates that the relationship between risk and return is not linear—it is influenced by economic cycles, market sentiment, and policy interventions.
Oppenheimer argues that the financial cycle’s most direct impact on wealth is reflected in the stock market. He reviews three major cycle shifts in the 20th-century U.S. equity market: “High-valuation peaks (such as 1929, 1968, 1999) were often followed by very low returns, while deep troughs (such as 1931, 1974, 2008) were often followed by strong returns.”
In a constantly shifting environment, bear markets, financial crises, crashes, and bull markets alternate. Take the Dow Jones Industrial Average: it rose 27% in 1985, climbed another 44% over 1986 and the first ten months of 1987—classic bull market behavior. Yet on October 19, 1987, it plunged 22.6% in a single day, marking a sudden reversal. Such volatility reflects the market’s reassessment and repricing of risk at different phases of the economic cycle.
In this book, Oppenheimer explains that stock market cycles generally have four stages:
- Despair Phase
In the despair phase, investors lose confidence in future returns and demand ever-higher compensation for holding stocks. This typically occurs during volatile markets and recessions. Stock prices decline as confidence fades. Since 1973, this phase has lasted an average of 16 months. But as Oppenheimer notes, despair often breeds hope, laying the groundwork for market reversals. - Hope Phase
In the hope phase, investors believe the worst may be over. Their worries ease, they accept lower return expectations, risk premiums fall, and valuations rise. This phase lasts about 9 months on average and delivers the strongest gains of the cycle—average returns of 40%. The surge is driven mainly by valuation expansion rather than actual earnings growth, making this one of the most lucrative phases. - Growth Phase
At the start of the growth phase, investors begin to see the earnings growth they anticipated, though not fully realized yet. Many pause to observe. As earnings growth outpaces returns, volatility falls and confidence in future returns rebuilds. In the U.S., this phase averages 49 months, with 16% returns and 60% earnings growth. In China, for example, from 2009–2010, stimulus policies drove corporate profits higher, and the Shanghai Composite climbed from ~2000 points in early 2009 to 3189 by November 2010. Hotspots spread from infrastructure and finance to consumer and tech sectors. Meanwhile, bond yields also rose, explaining why investors demanded higher equity returns. Both stock and bond markets advanced. - Optimism Phase
By the optimism phase, accumulated gains attract more investors eager not to miss out. Returns surpass earnings growth, and expectations for future profits decline. Toward the end, volatility rises again. On average, this phase lasts 23 months, with stock prices surging strongly and P/E ratios rising by over 50%. High risk appetite and leveraged capital flood in, pushing stocks upward. But such enthusiasm detached from fundamentals inevitably leads to sharp corrections.
From these four phases, combined with Oppenheimer’s insights, we can summarize several key conclusions:
- Earnings and returns are asynchronous. Most earnings growth occurs in the growth phase, with average real earnings growth of ~60% in the U.S. (40% in Europe). This shows investors pay in advance for future growth when valuations are low.
- The hope phase delivers the highest returns. In both the U.S. and Europe, average returns of 40–50% highlight the power of confidence reversals. As the saying goes, “confidence is worth more than gold.”
- The optimism phase plants seeds of correction. Rising valuations and surging confidence sow risks for the next downturn.
So, where are we now in the cycle?
Oppenheimer believes we are in the post-financial crisis cycle, the longest cycle yet. It differs from others for several reasons. First, the turmoil triggered by the 2007–2008 U.S. housing collapse severely distorted cycle stages, especially outside America. After the U.S.-led crisis, the European sovereign debt crisis dominated 2010–2011. Just as those worries faded, emerging markets and commodities plunged in 2015–2016.
Second, this cycle has been shaped by unconventional policies such as quantitative easing, ultra-low inflation, and historically low bond yields.
Third, relatively weak profit growth is a unique feature of this cycle. At the same time, valuations have risen steadily. This explains why U.S. stocks outperformed Europe and emerging markets, and why tech stocks delivered outsized profits and returns.
Turning to China: many researchers argue the bottom of this cycle came around 2008, the peak around 2017, with an 8–9 year downswing thereafter. By that measure, 2017–2025 is the downtrend stage. Typically, valuations compress and equities underperform early in downswings. But as the cycle nears bottom, expectations and liquidity improve, and markets often rebound ahead of the economy. My observation is that since 2024, China’s A-share market has shown signs of recovery: valuations remain low, but sentiment is warming, suggesting a transition from despair to hope—or the early stage of hope.
Recognizing Cycles: Key Signals
Naturally, many ask: as small investors, how can we tell which phase of the cycle we’re in? A common experience: when growth stops worsening, valuations are low, and the economy is weak, equities often perform best. That’s the best time to buy the dip.
But is cycle recognition really that simple? Of course not—the devil is in the details. Former Fed Vice Chair Roger Ferguson once said economists’ recession forecasts have a poor track record, underscoring the difficulty. Still, tracking key indicators—like inflation, interest rates, bond yields, and unemployment—can help guide investors. Let’s look at them one by one:
1.Bond Yields
Bond yields, especially medium- and long-term Treasury yields, are crucial signals because they reflect monetary policy, interest rates, and inflation expectations. Yield changes affect equity returns. When yields fall, stocks usually perform better. Over the long term, declining yields are positive for equities. In the U.S., short-term equity returns are lower than bonds, but over the long run, stocks outperform.
Rising yields, however, aren’t always bad for stocks. Their impact depends on:
- Cycle timing (early-cycle markets are more resilient).
- Adjustment speed (slower rises are less harmful).
- Yield level (10-year U.S. Treasuries at ≥5% historically hurt equities).
- Equity valuation (low valuations cushion shocks).
- Inflation drivers (real vs. nominal; inflation-driven yield rises are easier to digest).
3.Inflation Rates
Interest rates are another crucial signal of financial cycles, reflecting time value of money and risk premiums.
- When rates are low and rising, it may signal recovery and improving earnings—good for equities.
- When rates are high and falling, it may indicate slowdown or recession—favor bonds and defensive assets.
Real rates have fallen due to demographics, excess savings, technology, and globalization—exacerbated by post-crisis quantitative easing.
A normal yield curve slopes upward, indicating optimism. A flat or inverted curve signals risk. Both the 2000 dot-com crash and 2008 financial crisis were preceded by inverted curves. History shows recession risks rise sharply after inversion.
In summary, interest rate changes affect investment strategies:
- Rate cuts benefit growth stocks and long bonds.
- Rate hikes benefit stable-value stocks and short bonds.
Correlation matters: when rates >4–5%, bonds and stocks move together; when rates are too low, they diverge, reflecting deflation risks.
Commodities also react: in rate-cut cycles, demand lifts oil and metals; in rate-hike cycles, caution is needed.
2.Inflation
Assets don’t always respond directly to inflation—the effect depends on its level and trajectory.
For example, after the 2008 crisis, QE lifted inflation modestly, but weak growth meant stocks and bonds held up. Liquidity even boosted equities.
But when inflation surges, both stocks and bonds suffer. In the 1970s stagflation, inflation stayed high, growth stagnated, monetary tightening lifted bond yields, and equities came under severe pressure. Rising input costs also squeezed margins (e.g., in 2011, soaring oil and commodity prices raised costs for manufacturers, hurting profits).
Mild inflation may signal the end of recession—good for stocks. But for fixed-income investors, inflation is the biggest risk. Stocks, tied to cash flows, can hedge price increases. By contrast, in deflation, fixed returns are favored, stocks are riskier, and investors demand higher returns. In economies prone to deflation, rising rates and yields may even be bullish for equities.
4.Unemployment
Rising unemployment is a reliable signal of recession. In the U.S., it has risen before every postwar downturn. The problem: unemployment lags the stock market. But very low unemployment often precedes bear markets. When joblessness hits lows while valuations are high, it signals risks of negative returns. The combination of cyclical low unemployment and high valuations often marks dangerous territory.
Part Three: How to Dance with Cycles — Achieving Long-Term Returns in Financial Cycles
At this point, you may be wondering: how can we dance with financial cycles and maximize long-term returns? As always, the devil is in the details. To understand financial cycles, we need to move from the macro level to the meso and micro levels. The meso level focuses on industries and companies, while the micro level focuses on people themselves—what Keynes once called “animal spirits” and what modern behavioral finance studies.
Let’s first look at the meso level, that is, industries and companies.
We generally divide industries into two categories: highly cyclical and weakly cyclical. Real estate, automobiles, and steel are highly cyclical industries—they act like economic “barometers.” When the economy improves, they benefit first; when the economy weakens, they are hit immediately. In hard times, the first spending cuts people make are usually on big-ticket items like houses and cars.
Weakly cyclical industries are closer to life “necessities.” Food, pharmaceuticals, and utilities grow steadily in boom times and generally hold up in recessions without major ups and downs.
But over time, the cyclicality of certain industries changes. Take the chemical industry: it used to be a typical cyclical sector, with demand and prices rising and falling in sync with the economy. Nowadays, however, many chemical firms have shifted toward high value-added products like coatings and pesticides, making them less cyclical.
Some traditionally defensive industries have also seen divergence. For example, consumer-related sectors: bubble tea has boomed, giving rise to giants like Mixue Bingcheng, while beer consumption has fallen far more than fundamentals alone would suggest—reflecting generational differences in consumption.
Companies are also often divided into value companies and growth companies. Value firms may not seem “exciting,” but often offer high dividend yields. In recent years, despite weak Chinese stock markets, high-dividend sectors such as coal, banking, and power companies have attracted investor funds. Growth companies, by contrast, are the “potential stars” of capital markets, with high expectations for earnings growth and higher valuations. Firms like CATL (Contemporary Amperex Technology) in new energy and Xiaomi in technology innovation are classic growth representatives.
This book presents a four-quadrant framework:
- Cyclical, high-growth industries (e.g., technology).
- Cyclical, low-valuation industries (e.g., automobiles, usually in mature stages).
- Defensive, high-growth industries (e.g., healthcare).
- Defensive, low-valuation industries (e.g., telecommunications).
Overall, growth stocks in high-tech companies have performed better. This partly reflects a dwindling supply of growth equities. Compared with past cycles, as inflation slows, fewer firms can deliver robust sales growth. Yet in the post-financial crisis cycle, with higher risks, investors have increasingly valued stable or predictable long-term returns. That is why infrastructure companies and government-backed concession projects have also performed strongly in recent years.
Now let’s move from the meso to the micro level—what ordinary investors care most about: the alternation between bull and bear markets.
Keynes argued that financial market instability is the result of psychological forces. Human behavior and psychology often amplify the trends of economic and financial variables—and these variables in turn drive economic and financial cycles.
So how do behavior and psychology drive cycles? To put it simply: emotions like fear and greed, optimism and despair, lead investors to repeatedly enter and exit markets, amplifying volatility. In booms, investors grow overly optimistic, overestimating future earnings and inflating asset prices. In downturns, they become excessively pessimistic, undervaluing assets and pushing prices down too far.
Behavioral finance shows that investors are not always rational; they are influenced by psychological biases. For example:
- Herding: blindly following others, chasing rallies and panic-selling.
- Overconfidence: overestimating one’s judgment, taking excessive risks.
These biases manifest in different stages of the financial cycle, shaping supply, demand, and price movements.
Every investor instinctively dislikes bear markets due to loss aversion. But that doesn’t mean that when a bear market arrives, we should rush to sell or sit idly by. In his book, Oppenheimer divides bear markets into three categories:
- Cyclical Bear Markets
These usually stem from rising interest rates, looming recessions, and falling profit expectations. They are caused by the normal economic cycle and are the most common type of bear market. - Event-Driven Bear Markets
These are triggered by low-probability events such as wars, oil price shocks, emerging market crises, or technology market disruptions. They create short-term uncertainty and raise equity risk premiums. - Structural Bear Markets
These result from structural imbalances and the unwinding of financial bubbles. They are often accompanied by price shocks such as deflation, and tend to be the deepest and longest-lasting bear markets.
Oppenheimer notes that cyclical and event-driven bear markets typically involve declines of around 30%, while structural bear markets fall about 50%. Event-driven bear markets are usually the shortest, averaging 7 months. Cyclical bear markets last about 27 months. Structural bear markets can persist for 4 years. Event-driven and cyclical bear markets usually recover to previous highs within about 1 year, while structural bear markets take an average of 10 years to return to their prior peaks.
Conclusion: A Future Where Optimism and Pessimism Coexist
Finally, regarding global economic growth and investment prospects over the long term, Peter Oppenheimer offers his own unique perspective. He is neither purely optimistic nor pessimistic; instead, he presents readers with both the optimistic and pessimistic factors he perceives, leaving them to form their own judgments. Here, due to space constraints, I will briefly summarize his views.
Let’s begin with Oppenheimer’s pessimistic side. In recent years, he has repeatedly said that global markets are entering a new environment of “high interest rates and low returns.” He believes this represents a structural challenge for investors and may even mark the end of the multi-decade era of “low interest rates + high returns.” Looking forward, he outlines two rather bleak scenarios for investment:
The first possibility is that economic activity returns to pre-financial crisis growth rates. This would restore confidence in future growth, but at the same time could sharply drive up long-term interest rates, increasing the risk of financial asset devaluation and potentially pushing stock and bond markets into painful bear territory.
The second possibility is that growth, inflation, and interest rates remain very weak—similar to Japan’s experience over the past several decades. While this might reduce financial market volatility, it would also likely mean persistently low returns. With aging populations and the growing burden of healthcare and pension liabilities, demand for returns continues to rise. Under the same level of risk, achieving adequate returns will become increasingly difficult. In short, with the “cheap money era” over, developed economies like those in Europe and the U.S. face aging demographics, sluggish productivity growth, and long-term declines in corporate profit growth—making the future investment environment more challenging.
However, Oppenheimer quickly pivots, reminding us that “every cloud has a silver lining.” We should still maintain a degree of optimism. Specifically, the greatest support for future economic recovery and investment returns lies in high-growth technology industries, which have been the strongest source of profits since the financial crisis. For example, after the bursting of the dot-com bubble in the early 2000s, the world entered nearly two decades of rapid growth in internet and smartphone industries. This demonstrates that people often overestimate the short-term impact of technology while underestimating its long-term impact.
Oppenheimer identifies several reasons for this:
- Technological waves contribute less to productivity and economic activity in the short run than most people expect. This is a long-term pattern. For instance, although James Watt introduced a relatively efficient steam engine in 1774, the first commercially successful steam locomotive did not appear until 1812, and it was not until the 1830s that Britain’s per-capita output began to rise significantly.
- New technologies often hold enormous potential to boost productivity, but without restructuring production processes, they cannot be effectively utilized. In many cases, technology also requires global standards, and the need to build complete network effects can slow adoption, delaying productivity gains.
Ultimately, in periods of falling interest rates, the net present value of technology companies is more positively affected than that of value firms or those sensitive to short-term economic fluctuations. Thinking about these opportunities brought by technology reminds me of a line from Howard Marks, the value investor admired by Warren Buffett and author of Mastering the Market Cycle: the best way to deal with cycles is to “recognize when markets go to extremes—and to profit from those extremes.”
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